Question

Assume there are two pathways for climate change: HIGH GHG and LOW GHG.

HIGH GHG is assumed to exert $50 trillion more in present discounted damages than LOW GHG over the next 50 years.  

We have a policy that we are currently 80% certain will move us from HIGH GHG to LOW GHG. This policy will cost $400 billion per year in present discounted costs.

We can wait 10 years and then we will know for certain what policy will move us to LOW GHG, but at that time it will cost $700 billion per year in present discounted damages.

Should we adopt the policy now or wait?

a We should adopt the policy now because we will come $8 billion ahead.

b We should adopt the policy now because we will come out $5.6 billion ahead.

c We should wait and see for ten years because we will come $8 billion ahead.

d We should await and see for ten years because we will come $5.6 billion ahead.

Answer 1

Answer - We should adopt the policy now because we will come $8 billion ahead.

Explanation:

Since the High CHG will cost $50 trillion more, it is better to shift to low CHC. But the point here is, either to adopt the policy now or to wait for 10 years.

If we adopt the policy now, we can save $8 billion. The calculation is, if the policy is adopted now, it will cost $400 billion per year multiplied by 50 years, which equals to $2 trillion.

If we wait for 10 years, the cost will be $700 billion per year multiplied by 40 years, which equals to $2.8 trillion. So, we can save $8 billion if we can adopt it now. Also, there is 80% possibility that we may move from High CHC to Low CHC to reduce the damages. Hence, it is better to adopt the policy now.